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The income statement allows users to evaluate the current performance of a firm and estimate its future performance. Some argue that accounting earnings reported on
The income statement allows users to evaluate the current performance of a firm and estimate its future performance. Some argue that accounting earnings reported on the I/S are not necessarily a realistic measure of economic income because of the ability of managers to manipulate reported profits through earnings management.
- Discuss several earnings management techniques managers may use to manipulate net income.
- Are these techniques illegal? What does this type of accounting signal about the earnings quality of an entity?
- Can you find any recent examples of earnings management in the popular press?
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